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Dull Near-Term Prospects for Accident & Health Insurance

Tanuka De
·6 min read

The Zacks Accident and Health Insurance industry comprises companies that provide workers’ compensation insurance, largely to employers operating in hazardous industries, such as construction, trucking, logging and lumber plus manufacturing and agriculture. These companies also offer group, individual or voluntary supplemental insurance products.

Workers' compensation is a form of accident insurance paid by employers without affecting employees’ pay. Claims are generally met by insurance companies or state-run workers’ compensation fund.

Let us take a look at the industry’s three major themes:

  • The accident and health insurance space has witnessed growth over the years, primarily driven by increase in benefits offered by employers. The right kind of workers’ compensation policy translates into personal care for injured workers, increased productivity, higher employee morale, lower turnover, reduced claims costs and less financial worry. Given the current pandemic, several organizations are working remotely to comply with social distancing norms. However, there are some essential services, which need to continue and the related employees are at high risk of getting infected. Frequency of claims from such essential service industries are bound to rise. On the other hand, rise in unemployment and furlough will impact new sales while premiums might be hampered due to decline in persistency.


  • The worker’s compensation industry has been witnessing pricing pressure over the last several quarters. Given this soft pricing, efforts to retain market share will again induce pricing pressure, which might curb top-line growth.  However, increase in claims due to the pandemic will likely increase pricing for this industry in the coming days. Also, higher spending on technological advancements will result in escalated expense ratios. Nonetheless, adoption of technologies like cloud computing or blockchain should help insurers gain a competitive edge.

  • Rising medical costs remain a headwind for workers’ compensation insurance. However, elevated underwriting exposure, sustained decrease in claims frequency rates (attributable to better working environment) and conservative reserve levels have been boosting the industry’s performance. This should help insurers meet claims without putting margins under strain during this pandemic.

Zacks Industry Rank Indicates Weak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all-member stocks, indicates drab near-term prospects. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #145, which places it in the bottom 43% of 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is the result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are not much confident about this group’s earnings growth potential. In a year’s time, the industry’s earnings estimates for 2020 have gone down 4.9%.
Before we present a few accident and health insurance stocks that investors may focus on, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms Sector and S&P 500

The Accident and Health Insurance industry has underperformed the Zacks S&P 500 composite and its own sector over the past year. The stocks in this industry have collectively lost 39.9% in the past year while the Finance sector has declined 23.5%. The Zacks S&P 500 composite has decreased 0.7% over the same period.

One-Year Price Performance

Current Valuation

On the basis of a trailing 12-month price-to-book (P/B) ratio, commonly used for valuing insurance stocks, the industry is currently trading at 0.72 compared with the S&P 500 composite’s 3.77 and the sector’s 1.98.

Over the past five years, the industry has traded as high as 1.6X, as low as 0.57X and at the median of 1.36X.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

Bottom Line

Prudent underwriting and intensive claims management practices with the aid of technology bode well for the industry. Nonetheless, pricing pressure and escalating medical costs are concerns.

We are presenting one stock with Zacks Rank #2 (Buy) and three stocks with a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMERISAFE, Inc. (AMSF): This Zacks #2 Ranked workers' compensation insurance provider in the United States offers benefits to injured employees for temporary or permanent disability, death, and medical and hospital expenses. The company witnessed its 2020 EPS estimate move 4.4% north in the last 30 days. AMERISAFE delivered a positive earnings surprise in all the last four quarters, the average being 50.67%.

Price and Consensus: AMSF

Aflac Incorporated (AFL): This Columbus, GA-based company offers voluntary supplemental health and life insurance products. The company came up with a beat in all the trailing four quarters, the average being 6.25%. The Zacks Rank #3 company has an expected long-term earnings growth rate of 5%.

Price and Consensus: AFL

Unum Group (UNM): The Zacks Consensus Estimate for current-year EPS of this Chattanooga, TN-based Zacks Rank #3 provider of financial protection benefit solutions in the United States indicates a 0.6% increase from the year-ago reported figure. Its expected long-term earnings growth rate of 9% betters the industry average of 7%.

Price and Consensus: UNM

Trupanion Inc. (TRUP): This Seattle, WA-based Zacks Rank #3 company provides medical insurance for cats and dogs on monthly subscription basis in the United States, Canada, and Puerto Rico. The Zacks Consensus Estimate for current-year EPS indicates an increase of 20% from the year-ago reported quarter.

Price and Consensus: TRUP

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Unum Group (UNM) : Free Stock Analysis Report
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